Managing Risk During the Historic Building Tax Credit Application Process

In rehabilitating historic buildings, there are a variety of risks that are inherent in the process, ranging from financial and regulatory matters to the physical features of the structure itself. Taking the steps needed to qualify for and apply for tax credits can help lessen or mitigate some of these risks. However, in order to secure the tax credits, you must also know how to navigate the system.

Applying for the program under the guidance of a knowledgeable consultant, such as Quinn Evans Architects and others, can make a big difference in a project’s chances for approval. A consultant or architect knows the ins and outs of the program, and their in-depth expertise can help you leverage better design to maximize your chances of receiving tax credits.

In addition, a consultant who has expertise working with the Standards can literally walk the property with you before you even apply, letting you know which architectural features must remain in order to qualify, and which ones may be modified to meet programmatic or other goals.

The potential financers of a project also want to control their own risks, and one way they can do so is by making sure the development team knows what they’re doing. Potential funders are far more likely to finance the project if a knowledgeable architect and/tax credit consultant can write a letter assuring them that the work is on track to meet the Standards and be approved for historic tax credits. Such a letter gives the funder the assurance they need to release funds before the project is done, so that money flows more smoothly, avoiding delays due to financing.

The Knapp’s Centre in Lansing, Michigan is a good example of how a knowledgeable architectural firm can help address risks. The former J.W. Knapp’s Department Store is an iconic Art Deco structure, built in 1937, that was listed in the National Register of Historic Places in 1983.

But when Quinn Evans Architects began working as the architectural firm on its redevelopment, the building had been vacant for 10 years, and was significantly dilapidated. The building’s iconic façade, comprising blue and yellow Maul Macotta panels and distinctive horizontal bands of glass block, had suffered years of water damage and corrosion. In fact, these conditions represented significant risks to the project’s ability to obtain financial backing.

To secure state and federal tax credits, the plan included creative updates that modernized the crumbling exterior while meeting preservation requirements. For example, the plan called for careful detailing to replicate the original character of the façade with a rainscreen system and new glass block windows.

As a result, the building was returned to its original splendor with an energy efficient, state-of-the-art building skin. Equally important was the development of new interior spaces to accommodate retail tenants on the first floor and mezzanine, office tenants on the middle floors, and residential units on the building’s top two floors.

Another benefit of working with an architect knowledgeable about historic tax credits comes into play when a project is in trouble. Several years ago, Quinn Evans Architects worked on the Merchant’s Row project in downtown Detroit, whose developer had run into a roadblock that threatened to derail the project.

The developer was rehabilitating a row of mostly 6-story buildings with a smaller, 4-story building in the middle. That one building, however, was the only place where the builder could effectively stage the project, so they sought permission to tear it down and eventually replace it with a new building. When their plan was turned down, they engaged Quinn Evans Architects to evaluate the impact of different options on the project’s compliance with the Standards.

Thanks to our deep familiarity with the Standards and the historic tax credit review process, we were able to negotiate a satisfactory solution that allowed the smaller building to be torn down and replaced and, on a broader scale, allow the entire project to proceed.

A case in point is in Lansing, Michigan, where a decommissioned power station was adapted for use as a corporate headquarters including insertion of new floors in the former boiler stack and construction of a major addition. Paired with careful restoration of the iconic exterior and unique interior details, this project illustrates the extent of alteration that can be accomplished by working with an experienced team.

In my next post — the last in this series, I’ll describe some additional things you should consider before you apply for tax credits.

For recommendations on how to determine whether your building is eligible for the program, how to apply, and how to ensure you receive the credits, download the guide here.